1. Stellar
Energy
GP,
Inc.
1500
Valley
House
Drive,
Suite
210
Rohnert
Park,
CA
94928
Overview
of
Solar
Power
Purchase
Agreements
(PPAs)
Presented
by
MaO
Lugar,
Vice
President
of
Sales,
Stellar
Energy
for
the
Center
for
Sustainable
Energy
May
10,
2010
1

2. Agenda
• Introduc*on
• A
brief
history
of
Renewable
Energy
(RE)
Finance
• Financial
structures
available
for
solar
projects
• Focus
on
Power
Purchase
Agreements
(PPAs)
– Opportunity
/
Host
Qualifica*on
– PPA
General
Terms
and
“Anatomy”
of
the
PPA
– The
“Value
of
Solar
Energy”
– Solar
PPAs
versus
“The
Grid”
– Financial
Analysis
2

3. About
Stellar
Energy
General
IntroducQon
• Founded
in
2004
• Top
15
EPC
provider
in
2008
and
2009
on
California
Solar
Ini*a*ve
• Headquartered
in
Rohnert
Park,
(CSI)
list
California
• Acquired
by
ITOCHU
Interna*onal
in
• EPC
contractor
(Engineering,
2009,
a
Global
500
company
with
over
$36
billion
in
revenues
Procurement,
Construc*on),
licensed
in
mul*ple
states
• Specializing
in
commercial
and
u*lity
grade
solar
energy
plants
• Clients
include
municipal,
agriculture,
manufacturing,
mining
and
commercial
opera*ons
• In
2008,
completed
the
largest
solar
installa*on
on
a
winery
in
the
U.S.
for
Foster’s
Wine
Estates
Americas
3

4. IntroducQon
What
can
solar
energy
do
for
organizaQons?
• Save
money
o Solar
energy
offsets
more
expensive
u*lity
rates
during
peak
hours
of
the
day…
net
metering
credits
• Hedge
energy
costs
o The
“fuel”
from
sunlight
is
free
unlike
tradi*onal
fuels
such
as
coal,
natural
gas
and
nuclear…
opera*ng
costs
do
not
fluctuate
over
*me
• Predictable
opera*ng
costs
o You
know
what
you
are
paying
for
your
solar
energy
kWh
from
day
one
through
the
life
of
the
system…
easier
for
budget
planning
• Improve
corporate
“green”
or
sustainable
image
o The
“green
revolu*on”
is
real
o Huge
marke*ng
dollars
are
being
spent
by
organiza*ons
going
“green”
o Solar
allows
you
to
be
“green”
and
save
“green”
at
the
same
*me
4

5. Brief
History
of
RE
Finance
Timeline
• 2000
–
Solar
incen*ves
become
prolific
in
CA
and
some
other
states
soon
to
follow
• 2000
to
2003
–
Solar
projects
s*ll
rela*vely
small
but
growing…
banks
become
more
interested
as
project
size
increases
with
aggressive
developers
• 2004
–
Launch
of
the
early
“giants”
of
solar
PPAs
who
pioneered
the
model
with
both
customers
and
the
banks
behind
the
transac*ons
• 2007
–
Wave
of
venture
backed
solar
financing
start-­‐ups
hits
the
US
• 2007
to
2008
–
Hyper-­‐compe**on
is
rampant…
many
un-­‐bankable
deals
• 2009
–
Global
financial
crisis
sends
large
commercial
solar
project
financing
into
a
tailspin…
weathering
the
storm
is
difficult
• 2010
–
Financial
markets
are
sojening
again,
and
PPAs
and
leases
return
to
the
forefront
of
commercial
solar
PV
systems
• Beyond
2010
–
Projects
will
con*nue
to
get
larger…
wholesale
PPAs
(provider
direct
to
u*lity)
will
become
more
common…
more
strict
credit
constraints
for
DG
hosts
5

6. Brief
History
of
RE
Finance
Global
Asset
Financing
for
New
Clean
Energy
Assets
($B)

7. Brief
History
of
RE
Finance
2007
to
Present

8. Financial
Structures
Available
for
Solar
Primary
Types
of
Financial
Structures
• Capital
Purchase
(Cash)
o Use
your
corporate
liquid
capital
or
loans
(on
balance
sheet)
to
install
solar
o You
own
and
operate/maintain
(O&M)
the
power
plant
o Financial
analysis
centered
around
IRR
and
ROI
calcula*ons
• Power
Purchase
Agreement
(PPA)
o Third
party
owns
and
operates/maintains
(O&M)
the
solar
power
plant
–
zero
capital
outlay
for
your
organiza*on
o You
buy
only
kilowao-­‐hours
(kWh),
similar
to
how
you
buy
energy
from
your
electric
u*lity
o Financial
analysis
is
centered
around
cash
flows
and
determina*on
of
immediate
savings
poten*al
• Lease
(Opera*ng
Leases
or
“Off
Balance
Sheet”)
o Third
party
owns
the
power
plant,
but
you
are
typically
responsible
for
O&M
–
zero
capital
outlay,
typically
off
balance
sheet
opera*ng
leases
o Typically
you
pay
a
fixed
monthly
fee
(not
*ed
to
kWh
produc*on)
for
term
of
contract
(~10
years)
o Financial
analysis
is
centered
around
cash
flows
and
determina*on
of
immediate
savings
poten*al
8

9. Financial
Structures
Available
for
Solar
End
User
Comparison
of
Financial
Structures
CharacterisQcs
Capital
Purchase
(Cash)
PPA
Lease
Upfront
Capital
Requirement
Yes
No
No
System
Performance
Risk
Yes
–
The
owner
is
responsible
if
the
No
–
PPA
provider
has
ongoing
Yes
–
The
lessee
/
host
is
system
does
not
perform
responsibility
to
ensure
the
system
responsible
if
the
system
does
not
con*nues
to
operate
as
required
perform
Ongoing
Payments
Fixed
monthly
fee
if
financed
through
a
Ongoing
payments
*ed
to
electricity
Fixed
monthly
fee
-­‐
the
lessee
loan
produced
by
the
facility
bears
the
increased
cost
of
electricity
in
a
poor
solar
month
OpQmize
Tax
Benefits
No
–
Owner
may
not
get
full
benefit
if
Yes
Yes
unable
to
reduce
taxable
income
or
if
government
or
not-­‐for
profit
Ongoing
Cost
Opera*ons,
maintenance
and
insurance
No
Opera*ons,
maintenance
and
costs
insurance
costs
Guarantees/Liens
Required
Probably
if
financed
No
(assuming
host
has
sufficient
Probably
credit
ra*ng)
Length
of
Contract
N/A
20
–
25
years
7
–
10
years
Buyout
price
at
the
end
of
contract
N/A
Fair
Market
Value
Fair
Market
Value
Early
Buyout
N/A
Yes
–
ajer
year
7
Yes
–
ajer
year
7
OpQon
to
renew
N/A
Yes
No
9

10. Customer
QualificaQon
ConsideraQons
for
All
Medium
to
Large
Scale
Solar
Projects
Includes,
but
not
limited
to:
• Geographic
loca*on…
financial
incen*ves
cri*cal
• Poten*al
customer
must
have
enough
physical
space
(roof/
ground/other)
to
accommodate
enough
PV
for
their
historical
electrical
load
www.dsireusa.org
• If
Capital
Purchase,
does
the
poten*al
customer
have
enough
tax
appe*te
to
mone*ze
the
ITC
(if
installa*on
begins
ajer
2010)?
PPAs
(and
most
leases)
• Must
have
3
years
of
audited
financial
statements
available
for
review…
non-­‐starter
if
statements
are
not
audited
• Should
have
about
4
to
5
*mes
the
EPC
value
of
the
solar
project
in
their
Current
Assets,
less
inventories,
on
their
audited
financial
statements
(not
in
Total
Assets)
• Should
have
Current
Assets
greater
than
Total
Liabili*es
(eg.
a
“strong”
Current
Ra*o
greater
than
1).
The
higher
the
Current
Ra*o,
the
beoer.
• S&P
ra*ng
of
BBB-­‐
or
beoer,
if
available
10

11. Focus
on
PPAs
Value
ProposiQon
for
the
Solar
PPA
• Providers’
primary
goal
is
to
deliver
solar
electricity
at
rates
lower
than
the
incumbent
u*lity
• Solar
PPA
provider
and
EPC
contractor,
together,
handle
all
details
for
the
host
customer
– Design
and
engineering
– Construc*on
and
maintenance
– Financing
and
RECs
– Rebates
and
incen*ves
– Energy
metering
and
billing
• Predictable
electricity
rates
guaranteed
for
life
of
contract
• LEED
points,
if
applicable
11

12. Focus
on
PPAs
Standard
PPA
Terms
 Solar
PPA
provider
typically
proposes
20
year
PPA
terms…
15
or
25
years
some*mes
possible,
depending
on
source
of
funds
 Early
purchase
or
buyout
op*ons
typically
star*ng
at
7th
anniversary
of
commercial
opera*on
of
facility
 Banks/investors
need
about
6
years
to
mone*ze
all
incen*ves
 Greater
of
Fair
market
Value
(FMV)
or
terminal
value
 Fixed
Annual
Escalator
(eg.
4.5%
per
year)
or
7th
Year
“Step”
 End-­‐of-­‐term
Op*ons
 Renew
the
agreement
for
a
second
term
 Purchase
the
system
outright
from
PPA
provider
at
the
Fair
Market
Value
price
 Have
the
system
removed
at
PPA
provider’s
expense
12

13. Focus
on
PPAs
Solar
Renewable
Energy
CerQficates
(SRECs)
 Also
known
as
Green
tags,
Renewable
Energy
Credits,
Renewable
Electricity
Cer*ficates,
or
Tradable
Renewable
Cer*ficates
(TRCs)
 Tradable,
non-­‐tangible
energy
commodi*es
in
the
United
States
that
represent
proof
that
1
megawao-­‐hour
(MWh)
of
electricity
was
generated
from
an
eligible
renewable
energy
resource
(renewable
electricity)
 Can
be
sold,
traded
or
bartered
 Owner
of
the
SRECs
can
claim
to
have
purchased
green,
renewable
energy
 In
considera*on
of
PPAs,
ownership
of
the
SREC
represents
about
$0.01/kWh
(+/-­‐
$0.005/kWh)
on
the
PPA
start
rate
in
CA
 SRECs
in
CA
are
much
lower
value
than
in
NJ,
for
example
(eg.
$15
to
$50/SREC
in
CA
vs.
$693+/SREC
in
NJ)
13

14. Focus
on
PPAs
OperaQons
&
Maintenance
/
System
Performance
Monitoring
• PPA
provider
responsible
for
all
O&M
for
en*re
term
of
contract
• If
system
not
opera*ng,
PPA
provider
will
lose
revenue
expected…
huge
mo*va*on
to
keep
system
opera*ng
at
peak
performance
• Typical
O&M
services:
• Panel
cleanings
(with
or
without
water)…
2x
per
year
in
most
parts
of
CA
• Torque
sewngs
in
inverter
and
combiner
boxes
• Security
• PPA
providers
use
same
performance
monitoring
equipment
as
specified
when
customer
purchasing
with
cash
/
capital,
such
as:
• Energy
Recommerce
• Fat
Spaniel
• Draker
Labs
14

15. Anatomy
of
the
PPA
View
from
PPA
Provider
Parent
Company
Guarantee
Construc*on
Master
Lease
Financing
Agreement
Agreement
Construc*on
Project
Sale
Insurance Loans
Lease
Backs
Equip.
PPA
Provider
Vendors
Integrated
Design
Engineer
Sub
Contractors Turnkey
EPC
O
&
M
Contracts
PPAs,
Com.
Op.
Construc*on
Contracts
PPAs,
Ini*al
Phase
15

16. Anatomy
of
the
PPA
View
from
Host
Customer
Solar
PPA
contract
16

17. Focus
on
PPAs
Value
of
Solar
kWh
vs.
Average
Cost
of
Energy
• This
is
a
founda*onal
concept
to
understand
• Average
Cost
of
Energy
=
Total
Dollars
Spent
/
Total
kWh
Consumed
• Value
of
Solar
kWh
(a.k.a.
avoided
cost)
=
Factor
of
Time
of
Use
(TOU)
rates
versus
Solar
Array
kWh
Produc*on
and
Net
Metering…
Savings
/
Solar
kWh
Produc*on
• Under
net
metering,
the
u*lity
credits
the
host
customer
for
energy
generated
by
solar
arrays
at
retail
rates
• Because
peak
TOU
rates
are
always
highest
during
the
day,
and
solar
energy
is
produced
during
this
most
expensive
*me
during
the
day,
the
host
realizes
CREDITS
from
the
u*lity
at
their
highest
rates
thus
driving
the
Value
of
Solar
kWh
higher
than
the
Average
Cost
of
Energy

18. Focus
on
PPAs
The
Value
of
Solar
kWh
or
JusQficaQon
of
PPA
Rate
Typical Commercial Load Profile
Solar Array Production Profile
18

19. From
LBNL
report,
“ The
Impact
of
Retail
Rate
Structures
on
the
Economics
of
Commercial
Photovoltaic
Systems
in
California”,
July
2007

20. Focus
on
PPAs
JusQficaQon
of
Annual
Escalator
Average Electricity Price in Key Solar PPA States
(CA, NJ, AZ, PA, CO, NV, MA, CT)
$0.14
$0.12
$0.10
$0.08
$/kWh
$0.06
$0.04
$0.02
$0.00
1970 1975 1980 1985 1990 1995 2000 2005
Year
U.S.
Government
Energy
Informa*on
Administra*on,
official
energy
sta*s*cs.
State
energy
consump*on,
price
and
expenditure
es*mates
(SEDS).
Complete
2005
data,
released
February
29,
2008.
hop://www.eia.doe.gov/emeu/states/_seds.html
20

21. Focus
on
PPAs
JusQficaQon
of
Annual
Escalator

22. Focus
on
PPAs
JusQficaQon
of
Annual
Escalator
22

23. Focus
on
PPAs
Hedging
Against
VolaQlity
Average Price Change
Electricity in Key Solar PPA States
50%
45%
40%
35%
30%
25%
Percent Change
20%
15%
10%
5%
0%
-5%
-10%
1970 1975 1980 1985 1990 1995 2000 2005
Year
U.S.
Government
Energy
Informa*on
Administra*on,
official
energy
sta*s*cs.
State
energy
consump*on,
price
and
expenditure
es*mates
(SEDS).
Complete
2005
data,
released
February
29,
2008.
hop://www.eia.doe.gov/emeu/states/_seds.html
23

24. Focus
on
PPAs
Financial
Analysis
–
25
year
term,
fixed
annual
escalator

25. Focus
on
PPAs
Financial
Analysis
–
25
year
term,
7th
year
“step”
escalator

26. Per
Unit
Energy
Cost
Comparison
25
Years,
No
Solar
vs.
With
Solar

27. QuesQons?

28. Thank
you.
Stellar
Energy
has
delivered
safe,
reliable,
clean
energy
to
a
diverse
range
of
businesses
and
ins9tu9ons
including
industrial
complexes,
government
facili9es,
mines,
distribu9on
warehouses,
wineries,
offices,
and
food
processing
facili9es.
MaO
Lugar,
Vice
President
of
Sales
Stellar
Energy
GP,
Inc.
1500
Valley
House
Drive
Suite
210
Rohnert
Park,
California
94928
mao.lugar@stellarenegy.com,
email
(707)
992-­‐3208,
direct
work
(650)
833-­‐9008,
mobile